How Former Canadian Income Trusts Can Protect Bond Investors From Dollar Debasement
Bruce Vanderveen submits:Bonds, especially Treasuries and municipal bonds (munis), are a major component of American retirement portfolios, be it pensions, IRAs, annuities, or mutual funds.The recent sharp fall in bond prices, which started last November, has sent tremors through fixed income markets. With an apparent end to the 30 year old bull market in bonds, it may be time to look at alternatives.How Safe Are Treasury and Municipal Bonds? Treasuries, munis, and other bonds may have hit their highs early last fall. Since then -- about the same time Quantitative Easing 2 (QE2) kicked in -- things have been mostly downhill for bonds.Treasuries have the full backing of the U.S. government, removing default risk. But . . . U.S. government obligations are ramping past $14 trillion (with no end in sight). Anyone who looks beyond the end of their nose must wonder where all the money is going to come from -- if not the printing press. The catch is: The Fed dares not stop the stimulus for fear of another deflationary collapse.Since 2008 the Fed has responded by taking short term rates to zero and now, with QE2, buying longer term Treasuries. Unfortunately, this buying has not lowered rates as intended (indeed they have risen). It has, however, goosed commodity and equity markets worldwide.Munis, though not guaranteed by the U.S. government, have had an historically low default rate. Tax exempt interest make munis especially desirable with seemingly higher future taxes coming. The fly in the ointment,Complete Story »
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